Question

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1. Youngjin Home Appliances Co. in Seoul, Korea, purchases a delivery truck. Following are list of payments made by Youngjin when it acquires the truck (Currency in Korean won, ₩) (20%):

1. Cost of truck: ₩22,000,000 (10% value-added tax included)
2. Vehicle delivery cost: ₩500,000
3. Costs for painting company name and logo on truck’s body: ₩200,000
4. Municipal bond due and fees for registration and license plate: ₩800,000
5. Annual insurance policy: ₩600,000
6. Annual maintenance service plan: ₩400,000

Instruction: Explain how these costs would be accounted for (i.e., whether each of

them should be included in the cost of truck or not and why). (20%)

Answer 1

In accounting, cost of asset includes purchase price and all other expenses which are required to make the asset bring into working condition.

A. Cost of truck: It should be accounted along with VAT

B. Vehicle delivery cost: Treated as transportation cost and is accounted

C. Cost of painting: treated as improvement cost and is accounted

D. Municipal bond: Should not be accounted but it is treated as expense in income statement

E. Annual insurance policy: Should not be accounted as it not part of the asset

F. Annual maintenance: Should not be accounted